Hispanic Self-Employment: A Dynamic Analysis of Business Ownership

45 Pages Posted: 8 May 2006

See all articles by Magnus Lofstrom

Magnus Lofstrom

Public Policy Institute of California; Institute for the Study of Labor (IZA)

Chunbei Wang

University of Texas at Dallas

Date Written: April 2006

Abstract

This paper analyzes causes of the low self-employment rates among Hispanics, which are nearly half of non-Hispanic white self-employment rates. Relatively little is known of the reason for the lower entrepreneurship rates among Hispanics, the fastest growing ethnic group in the U.S. The paper analyzes the self-employment gap by studying self-employment entry and exits, which determine the observed self-employment rates, utilizing nationally representative longitudinal data, the 1996 panel of the Survey of Income and Program Participation (SIPP). The data reveals differences between Mexican-Hispanics and Hispanics not of Mexican descent, referred to as Other-Hispanics. While Mexican-Hispanics are less likely to enter self-employment, relative to whites, Other-Hispanics are more likely to start a business. The differences however, are relatively small but shown to be meaningful in explaining the white-Hispanic self-employment rate gap. The data show large differences in business survival rates between Hispanics and whites. Mexican-Hispanics are almost twice as likely to exit business ownership in a year compared to whites. Our results indicate that differences in education and financial wealth are important factors in explaining differences in entrepreneurship across groups. We also show that the lower self-employment entry rates among Mexican-Hispanics is due to lower entry rates into business ownership of firms in relatively high barrier industries. In fact, Hispanics are more likely to start-up a business in a low barrier industry than whites. Differences in the industry composition across groups is also discussed and analyzed as a determinant of differences in business survival rates.

Keywords: self-employment, entrepreneurship, Hispanic

JEL Classification: J15, J23

Suggested Citation

Lofstrom, Magnus and Wang, Chunbei, Hispanic Self-Employment: A Dynamic Analysis of Business Ownership (April 2006). IZA Discussion Paper No. 2101. Available at SSRN: https://ssrn.com/abstract=900377 or http://dx.doi.org/10.2139/ssrn.900377

Magnus Lofstrom (Contact Author)

Public Policy Institute of California ( email )

500 Washington Street
Suite 800
San Francisco, CA 94111
United States

Institute for the Study of Labor (IZA) ( email )

P.O. Box 7240
Bonn, D-53072
Germany
+49 228 3894 303 (Phone)
+49 228 3894 210 (Fax)

Chunbei Wang

University of Texas at Dallas ( email )

2601 North Floyd Road
Richardson, TX 75083

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